FTAA -
COMMITTEE OF GOVERNMENT REPRESENTATIVES ON THE PARTICIPATION OF
CIVIL SOCIETY

CONTRIBUTION IN RESPONSE TO THE OPEN INVITATION

Name(s)

Stephen J. Porter and Carroll Muffet

Organization (s)
(if applicable)

Center For International Environmental Law (CIEL)
Defenders of Wildlife

Country (ies) /
Regin (s)

U.S.A.

Center for International Environmental Law
and Defenders of Wildlife

Submission to the Committee of Government
Representatives on the Participation of Civil Society

September 30, 2000

I. Introduction

As multilateral trade liberalization treaties push forward the
free-trade agenda, the conflict created between deregulated trade and the
principles of environmental protection has become increasingly apparent.
The growing extent to which multilateral trade treaties are able to
influence and subvert public policy is enlightened by the tension between
these two agendas. With the first draft of the Free Trade Area of the
Americas (FTAA) due this next year, heeded input from civil society may
help to make this agreement one that can reconcile the needs of
multinational corporations with those of the citizens and ecosystems that
fall within the jurisdictions of participating states of the FTAA.
The purpose of this paper is to highlight several specific concerns
regarding the Free Trade Area of the Americas (FTAA) and its effect on
environmentally sustainable development. The first concern is over the
extent to which the Negotiating Groups of the FTAA will include public
participation in the process of drafting the provisions of the FTAA and in
the operation of the FTAA. A second, and related concern is the extent to
which the negotiating parties' commitment to transparency and public
participation will be reflected in the provisions of the FTAA relating to
dispute resolution. A third concern is the likelihood that the FTAA may
include investor protection rules similar to those in Chapter 11 of the
NAFTA. Those rules coupled with the investor to state mechanism create an
imbalance that favors investor rights over those of federal governments to
enforce environmental regulations. Lastly, the inclusion of positive
provisions for environmental principles could improve the investment
regime by imposing obligations on investors to ensure that their actions
meet minimum corporate accountability standards.

II. Public Participation

At the San Jose Ministerial, and again in Toronto, the FTAA negotiating
parties reaffirmed their commitment to the principle of transparency in
the negotiating process. This commitment is fundamental not only to the
fulfillment of the democratic principles espoused in the Miami
Declaration, but also to the success of the FTAA itself. The only way to
gain popular support for the FTAA within the hemisphere is to allow the
FTAA to be a transparent institution that involves the input of civil
society. Options for public participation are presented through an
analysis of multilateral environmental treaties, which are on the
forefront of efforts to create participatory international regimes. These
options are summarized below and are discussed in further detail in the
attached document, “Options for Public Participation.” The first steps to
moving towards increased transparency would be to release the negotiating
positions submitted by the governments and any consolidated draft text. An
important second step is to open future ministerial meetings to
participation by NGOs.
The core of the popular backlash against multilateral trade agreements,
such as the WTO and the MAI, in recent years can be attributed to the lack
of transparency and public participation within these institutions. People
do not understand the nuances of these trade agreements and for good
reason; they have been excluded from the negotiations. There is only one
avenue through which the FTAA will be able to earn its support from the
public, and that is to allow the public and NGOs to be involved in the
process. Providing a democratic check on the negotiations process of the
FTAA will demystify the FTAA and make it a much more citizen-friendly
trade agreement.

A. Options for Public Participation

Defining the degree and means by which civil society representatives
will participate in the FTAA is crucial to its success. There are many
options for including public participation in a multilateral agreement, as
witnessed in developments in multilateral environmental law. The Rio
Declaration on Environment and Development and Agenda 21 at the United
Nations Conference on Environment and Development (UNCED) held in Rio de
Janeiro in 1992 identified three principles, or “pillars,” of public
participation: access to information, access to decision-making, and
access to justice. In the post-Rio period, these three principles have
been incorporated into the rulemaking, implementation and monitoring
phases of several multilateral environmental agreements, such as the U.N.
Conventions on Climate Change, Biological Diversity, and Desertification.
FTAA negotiators should first provide the framework in the FTAA draft that
will establish the right of the public and NGOs to access information and
take part in the decision-making process. Details of the participation
mechanism can be worked out later.

i. Access to Information

The first principle of public participation, access to information, can
be achieved by ensuring that public authorities make information available
to the public in a transparent manner. Allowing for document dissemination
facilitates this process. The Framework Convention on Climate Change (FCCC)
instructs its secretariat to reproduce and distribute documents at the
sessions and to publish and distribute official documents, for example.
Hard copies of documents should be available at official meetings and they
should be electronically available on the FTAA website. Documents should
also be posted on the website in a timely manner. The types of information
made available should be subject to limited restrictions. The WTO has
failed to fully incorporate this principle. The well-publicized civil
protests against the WTO at its ministerial meeting in Seattle, Washington
in 1999 were provoked significantly by a belief that the WTO operates
secretly and without public accountability. Most WTO documents are made
available to the public only six months after they have been
“derestricted.”

ii. Access to Decision-Making

Access to decision-making is a second principle of public participation
that should be addressed in the FTAA. The public should be able to
participate in the decision-making process both during the negotiating
process and as an eventual agreement is implemented. Agenda 21, the action
plan for the 1992 Rio Declaration, suggests that the U.N. system should
take measures to enhance or establish mechanisms and procedures within
each U.N. organization “to draw on the expertise and views of
non-governmental organizations in policy and program design,
implementation, and evaluation.”
Applying for accreditation is the first step in gaining access to
attend official meetings. Requirements for NGO accreditation vary
according to the agreement. The Climate Convention allows any NGO that is
legally constituted, non-profit and competent in climate change to be
accredited. Unlike the accreditation requirements for the Climate,
Biological Diversity, and Desertification Conventions, the North Atlantic
Fisheries Organization (NAFO) has a more restrictive and detailed
accreditation process. NAFO additionally requires information on the
organization’s decision-making process and funding, a history of the
organization and its activities, papers produced by the organization
pertinent to NAFO’s subject matter, a history of NAFO observer status, and
input that the organization plans to present at the meeting. These
materials must all be submitted at least 100 days before the meeting.
The types of meetings open to NGO attendance varies according to the
agreement. For the main Rio-era conventions, the trend has been to allow
accredited NGOs to attend nearly all types of official meetings. This
trend is also apparent in natural resources regimes, such as the
Endangered Species Convention (CITES), the Dolphin Conservation Agreement,
and the Inter-American Tropical Tuna Commission (IATTC). NAFO and other
earlier agreements subscribe to a more conservative model in which they
may attend meetings of the General Council or the Fisheries Commission,
but are restricted from attending meetings of the subsidiary bodies or
working groups.
Expressing views at meetings, such as permitting NGOs to make oral or
written statements in the meetings they attend, permitting NGOs to
distribute documents, and submit proposals, have been governed by practice
over time in the treaties examined. At the Climate Convention, the number
of speaking environmental NGOs is usually balanced with the number of
business NGOs. If the chair of the meeting decides to not give the floor
to an NGO representative at a meeting, s/he is expected to give a reason
for not doing so. In contrast, NAFO offers formal opportunities for oral
statements from NGOs, however only if the secretariat has been provided
the NGO “input” at least 100 days in advance. Restricting statements to
only those prepared over three months in advance may render such input
irrelevant due to their lack of timeliness. This does not seem to be a
constructive way of managing civil society participation at these
meetings. This trend is consistent with the policies regarding NGO
distribution of documents at meetings. The Climate Convention and CITES
will even provide tables outside of conference rooms for NGO observers to
place materials that were not required to be approved prior to the
meeting; under the NAFO, in contrast, NGOs may only circulate documents
that have been submitted to the Secretariat at least 100 days prior to the
meeting.

iii. Implementation

NGOs can contribute to the effectiveness of treaty implementation and
compliance by providing monitoring, data management and outreach services;
alerting parties to potential cases of non-compliance; and submitting
legal briefs for compliance-related proceedings. NGOs are adept at
engaging stakeholders though outreach. This can be useful to treaties
facing potential pubic opposition due to a lack of public understanding.
For example, the contracting parties of Ramsar Convention on Wetlands
agreed that, to be effective, they must engage stakeholders in defining
the issues and possible solutions needed for preserving wetlands. Involved
NGOs develop strategic approaches to communication, education and public
awareness about wetlands issues.
The side agreement to the NAFTA, the North American Agreement on
Environmental Cooperation (NAAEC), serves as one example of how civil
society can help to alert parties to potential cases of non-compliance.
NAAEC requires each contracting party to effectively enforce its
environmental laws insofar as they might affect international trade
between parties. NAAEC empowers NGOs to petition the secretariat if they
believe a party is neglecting to enforce its environmental laws
effectively. Such a submission has the potential to lead to an exchange of
views between parties and to the Council of the Commission on
Environmental Cooperation (CEC) releasing a report on the matter to the
public.

B. FTAA Transparency

The FTAA should take the first steps to implement the principles of
transparency and public participation at the most basic level. Since the
first draft of the FTAA is not yet complete, there is good opportunity to
involve the civil sector in the creation of the language and provisions
that will define the FTAA. This would also prove to be a good way to
mitigate public opposition to the treaty.

To date, the FTAA negotiators have made only modest progress in making
information publicly available. Consistent with Annex III of the Toronto
Declaration, the Trade Negotiations Committee has made available to the
public the compilations of hemispheric trade provisions compiled by the
various Negotiating Groups. While these compilations may be of utility to
persons doing scholarly comparisons of existing trade agreements, they do
little to facilitate informed public participation in the FTAA
negotiations. Such participation can be facilitated only by timely access
to pertinent negotiating documents, such as the "annotated outlines" that
have been completed by the Negotiating Groups and the draft chapters
currently being prepared. We encourage the negotiating parties to make
publicly available the current versions of these documents, negotiating
positions that have been tabled by the parties, and the consolidated draft
text. To ensure the accessibility of this information in the future, the
next ministerial declaration adopted by the negotiating parties should
declare that all such materials are public documents.

The FTAA should also open its future ministerial meetings to NGO
participation and allow side events, such as seminars and presentations by
NGOs and academics, to be hosted by NGOs. At the Climate Convention (FCCC),
events and exhibits organized mainly by the NGO community provide fora for
the exchange of information between observers, the party delegates, the
United Nations and other agencies and intergovernmental organizations. The
secretariat arranges for and provides rooms and equipment to NGOs for use
at these events.

III. Dispute Resolution

In the Summit of the Americas Plan of Action, which announced the FTAA,
the American nations committed to making "trade liberalization and
environmental policies mutually supportive." The negotiating parties
renewed this commitment in the San Jose Declaration, declaring this a
General Objective of the negotiations. The San Jose Declaration also
recognized that the FTAA should not simply mimic the WTO structure, but
"improve upon WTO rules and disciplines wherever appropriate." The Dispute
Resolution provisions provide a unique opportunity for the parties to
fulfill both of these objectives.

It is now widely recognized that the dispute resolution process
established under the WTO Agreements is incompatible both with national
efforts to protect the environment and with the principles of transparency
and public participation to which the FTAA negotiating parties are
committed. Due to an unfortunate combination of over-broad commitments and
poorly-crafted exemptions, legitimate environment and health policies
adopted by every WTO party are subject to attack as trade-distorting
measures. Even when a policy might survive a WTO-challenge, the costs of
defending the policy before the WTO can be prohibitive. These problems are
exacerbated by the non-transparent, non-participatory nature of the WTO
dispute resolution process. This secrecy often prevents parties from
seeking potentially valuable assistance from members of academia, the NGO
community and the general public who may have both resources and expertise
to contribute to the process.

If the FTAA is to garner the widespread public support that is critical
to its success, the negotiating parties must not replicate the errors of
the WTO. The FTAA must include broader and more explicit language
exempting legitimate environmental and health policies from unreasonable
trade challenges. Just as importantly, the negotiating parties'
commitments to transparency and public participation must be explicitly
reflected in the FTAA's dispute resolution procedures. At a minimum, the
procedures must provide for public notice of disputes, public access to
submissions by disputing parties, and the submission--and
consideration--of amicus briefs by concerned persons. In addition,
the procedures should allow persons with expertise in environmental
matters to be empanelled in disputes that raise environmental issues.

IV. Expropriation and Compensation in NAFTA Ch. 11

The NAFTA investment chapter (Chapter 11) is a likely model for FTAA
investment rules, which raises several disturbing matters. The definition
of expropriation in NAFTA remains too broad, while case studies, such as
the Metalclad Case and the Ethyl Case, have demonstrated that an
expropriation provision can significantly restrict the ability of
governments to enforce environmental regulation, forcing governments to
“pay to regulate” polluters. Similarly, Article 1105 of NAFTA is also
problematic in that it requires countries to treat other countries in the
trade agreement according to “minimum standards of international law.”
Since there is no clear standard to gauge “minimum standards of
international law,” broad discretion is left to the NAFTA arbitration
panels which were intended to serve as a commercial arbitration
mechanisms, and not a body to decide broad public policy conflicts.

These powerful rights granted to foreign investors coupled with the
investor-to-state dispute mechanism create a one-sided situation. Although
not a complete solution, one option for addressing this imbalance is to
include a corresponding right of action for citizens who feel their rights
have been relegated to secondary status below the rights of investors
under the FTAA. Finally, the best solution to the dilemma caused by the
investor-to-state mechanism would be to just eliminate it and substitute
it with the more traditional state-to-state mechanism.

A. Expropriation Rules in NAFTA: Case Studies

NAFTA’s Chapter 11 requires its contracting parties to compensate
investors for acts, even when taken in the public interest, that directly
or indirectly expropriate or nationalize a foreign investment and for
measures tantamount to nationalization or expropriation. This vague
language leaves the precise definition of expropriation to the discretion
of the court, international arbitration panel, or other dispute resolution
body. If such a body were to employ a broad interpretation of
expropriation, a government could be required to “pay to regulate”
polluters if the body found that an environmental regulation had reduced
the value of a foreign investment, either directly or indirectly. The
chilling effect of such a legal framework on government efforts to protect
the environment could be enormous.
Two cases already adjudicated under NAFTA illustrate the danger. In one
case, a United States corporation with Mexican subsidiaries known as
Metalclad Corporation brought and won a claim against the government of
Mexico because the Mexican state San Luis Potosi did not grant the company
an operating license for a hazardous waste disposal facility. Metalclad
has been awarded $16.7 million in the case. In another case, the Canadian
government agreed to pay the U.S. based Ethyl Corporation $13 million in
damages to settle a claim that Ethyl had brought alleging that Canada
violated the expropriation provisions of NAFTA by banning the import a
gasoline additive, MMT, which is widely believed to create a public health
risk. The Ethyl Case demonstrates how vulnerable governments may be to
corporate pressures, lacking the legal resources to confront a challenge
from lawyers representing large corporations. Under the threat of lawsuits
such as these, governments will inevitably become much more cautious about
introducing and enforcing regulations that are intended to protect the
environment.
The proper balance between private and public rights remains a deeply
controversial issue. The question of at what point regulations deny
investors the “use and enjoyment” of their property to such an extent that
they deserve compensations remains open. If allowed to be broadly defined
and adjudicated in a closed, unaccountable forum, the expropriation
provision threatens to elevate property rights above all other
considerations, including public policy. If expropriation language is to
be included in the FTAA, it must be drawn much more narrowly than the NAFA
Chapter 11 language. Based upon these considerations, if expropriation
protection is included, the act of expropriation must be narrowly defined
to preserve the traditional rights of sovereign governments to regulate in
the public health.

B. Article 1105: Minimum Standards of International Law

Under Article 1105 of the NAFTA, foreign investors are entitled to fair
and equitable treatment under the minimum standards of international law.
Since there is no clear standard in international law by which to abide,
the ambiguity presented by this provision provides the NAFTA arbitrations
panel the opportunity to define these standards according to their
discretion. Since arbitration mechanisms under NAFTA were primarily
designed to be commercial arbitration mechanisms, they are not equipped to
deal with broad public policy issues, such as those brought up in the
Metalclad and Ethyl cases, which deal with the contours of the powers of
countries to regulate public health and the environment. The precarious
balance between international commercial interests and domestic public
policy enforcement that is supposed to be achieved in such arbitrations
panels highlights the essence of the conflict between trade and the
environment. The trade world inherently strives for deregulation, since
every regulation potentially could be a barrier to trade. The
environmental world, on the other hand, requires governmental regulation
to achieve its goals.

C. Investor-to-State Mechanism should be balanced with
corresponding right of action for citizens

To the extent that investors are granted directly enforceable rights,
there ought to be a corresponding right of action granted to citizens as
well. NAFTA represents the first time a multilateral trade agreement has
substituted the traditional State-to-State mechanism with an
Investor-to-State mechanism, allowing investors to bring claims for
monetary damages against host countries. As discussed above, the
international arbitral panels established under Chapter 11 do not provide
appropriate fora for resolving disputes in a way that balances the
concerns of investors with the concerns of neighboring property owners and
local communities. Arbitrations take place in secret, without the
participation of all stakeholders in a dispute. Private individuals, and
sub-national levels of government, are not allowed to present their views
during the arbitration or even informed that a claim has been brought
although they may be the parties with the most direct interests in the
outcome of the controversy. Moreover, rather than setting up an
intergovernmental dispute resolution system, Chapter 11 relies on private,
for-profit arbitration institutions. The arbitration system lacks
safeguards to ensure that arbitrators are trained to understand the risks
to human health and the environment posed by inadequate regulation as well
as the needs of business.
If investors are to be granted such broad rights, there should be a
corresponding counterbalance within the institution that gives equal right
to citizens to bring claims to the Panel if that citizen feels as though
their legal rights have been subverted in favor of international
investment regimes. Individuals and the civil sector should be able to
bring direct action against a government.
The Investor-to-State mechanism exacerbates the concerns about trade
and environment conflicts. The ability of an investor to bring direct
action against a government on the basis of expropriation is compounded by
the fact that such disputes would be decided according to the discretion
of a commercial arbitrations panel that is not sufficiently equipped to
settle public policy conflicts. It seems as though one solution to this
problem would be to preclude the creation of an Investor-to-State
mechanism in the FTAA. Instead, a State-to-State mechanism should be
sufficient to deal with investor concerns in a multilateral trade
agreement.

V. Positive Provisions in Investment Agreements

There are a number of "positive provisions" that could improve
investment regimes. In particular, investment rules must contain
provisions that: prevent host countries from attracting investment by
lowering or relaxing health and environmental standards; require investors
to conduct environmental impact assessments for any significant projects;
give citizens and local communities access to relevant information
regarding investments; ensure that environmental standards are
progressively improved and consistently enforced; and create mechanisms
for Parties and citizens to raise issues related to the environmental and
social impacts of increased economic activity due to greater investments
flows. Above all, a regime that grants broad rights to investors, as the
NAFTA does, should impose concomitant responsibilities on investors to
ensure that their actions meet minimum corporate accountability standards.
A sound investment agreement should give investors incentives to
promote sustainable development rather than pursue short-term gain. First,
an investment agreement should not be linked to a free trade agreement.
Second, governments should assess existing foreign direct investment and
proposed multilateral rules to determine past and potential impacts on
environmental and social policy and economic security before these
governments design a new investment agreement. Third, expropriation
provisions should explicitly state that they do not apply to regulation
that falls within traditional government powers to protect public health,
safety, and the environment. Fourth, Investor-to-State dispute settlement
fora, to the extent they exist, should employ legal experts who are
trained in public policy, not merely business practice and should be
transparent and open to all interested parties.

VI. Conclusion

We have sought to provide a brief overview of some of the problematic
issues surrounding the FTAA. Without adherence to public participation
principles, the FTAA will face public opposition in the U.S. There needs
to be a democratic check on the trade process in order to gain popular
support. This paper and the attached document highlights many options for
public participation that have been adopted in multilateral environmental
agreements. They all draw upon the three principles of public
participation-access to information, access to decision-making, and access
to justice. The most immediate way the FTAA can begin to embrace these
principles is to open future FTAA ministerial meetings to NGO
participation and to make public the tabled negotiating positions by the
participating parties as well as consolidated text when it becomes
available.
The commitment to public participation must also be reflected in the
FTAA's dispute resolution procedures. Consistent with their commitment to
improve upon the WTO system, the negotiating parties should ensure not
only that the FTAA's trade rules provide adequate protection for
legitimate environmental and health policies, but also that members of the
public affected and protected by those policies can participate fully in
trade disputes that implicate them.
Likewise, serious concerns are raised by the possibility that the FTAA
may include an investments chapter similar to Chapter 11 of the NAFTA. The
expropriation and fair and equitable treatment provisions in NAFTA present
significant risks for governments and their efforts to adopt and enforce
environmental regulations. Cases under NAFTA show the investor-to-state
mechanism can reverse the polluter pays principle so that governments
would have to pay to regulate polluters instead. The arbitration
mechanisms used by NAFTA to resolve such issues were originally intended
to deal with international commercial arbitrations and not broad public
health and environmental policy issues. This creates an imbalance within
the trade regime, favoring foreign investors over the rights of citizens
of participating countries. One way to add more balance to this mechanism
would be to grant a corresponding right of action to citizens and NGOs.
Another option is to eliminate the investor-to-state mechanism all
together, thus allowing national governments to act as a public policy
filter on the types of claims brought to dispute settlement. Finally, the
FTAA should also include positive provisions that focus on promoting
environmentally sustainable principles.